In what should be welcome news for tenants, the ADLS abatement clause was recently held to apply to much broader losses than some have expected.
A recent High Court decision recognises the difficulties faced by a tenant who is unable to fully operate its business and thus has limited cashflow. A pay now argue later regime would effectively prevent many tenants from being able to prove they are entitled to an abatement. This decision reflects the public interest in ensuring that the burdens of COVID-19 losses are fairly borne by tenants and their landlords.
On 18 March 2021, the High Court set aside a statutory demand for rent.[1] The court held it was arguable that rent had abated due to the COVID-19 lockdown and was therefore not payable by the tenant.
The tenant, a café operator, argued that clause 27.5 of the standard ADLS lease applied because the COVID-19 lockdown meant it was “unable to gain access to the premises to fully conduct the Tenant’s business from the premises”.
The café was in an office block. Since the lockdown, the anchor office tenant, the IRD, had mandated little to no staff in the building. The café argued that, although the premises could be accessed, it was not possible to fully conduct its business from the premises because of this depopulation.
The High Court accepted that access must be access to allow the business to operate, which covers suppliers, staff and customers. The Court found that there was a substantial dispute about whether an abetment of rent was required for periods during Levels 1 and 2. Therefore the Court set aside the landlord’s statutory demand.
The Court found that clause 27.5, when triggered, operated automatically to reset the rent. Therefore, the landlord could not compel the tenant to pay the original rent. The tenant need not pay first and argue later. It simply has to pay the abated portion.
[1] Coffee Culture Franchises Limited v Home Straight Park Trustees Limited [2021] NZHC 577.
